Will Children’s Critical Thinking Training Produce a Unicorn?

According to a report from FirstInsight, 86 financing events took place in China’s quality education sector in the first three quarters of 2019, a decrease of 38.5% compared with the same period last year. 

In the past two years, art training and programming educational companies have received a lot of attention; but it seems that the subsectors are turning cold as the declining number of financing events becomes evident. However, startups focusing on the critical thinking training of children have caught the eyes of some big players. The number of events increased only by three compared to 2018, yet the amount has jumped up drastically. 

The company HuohuaSiwei (火花思维) raised millions of dollars in its two rounds of financing from huge investors GGV Capital, KKR and Northern Light Venture Capital. On the other hand VIPThink (豌豆思维), another company focusing on children’s critical thinking ability raised millions of dollars in two rounds of financing and was backed by TAL and DCM Ventures.

In the first three quarters of 2019, the amount of financing for the thinking training track nearly doubled. The total financing amount approached CNY 1.3 billion, an increase of 93.4% over the same period last year. In addition, in terms of quality education, financing events have been reduced by more than half, with the total financing amount reduced by less than 100 million.

As we can see in the table above, HuohuaSiwei dominated other firms in terms of raising funds in the first three quarters of 2019. VIPThink was the second startup from the same sub-sector which raised huge funding. The critical thinking training track for children contributed a hefty amount to the total financing raised by quality education startups in the first three quarters of this year. 

Education giants exploring children’s critical thinking

Both China’s education industry veterans, New Oriental and TAL, have contributed to the track by either investing in firms or carrying out the acquisition of firms focusing on it.

In 2011, TAL explored the evolution of simple mathematics to mathematical thinking and how it helps children. In the same year, it came up with Mobby STEM Center. In 2015, it participated in the angel round financing of TODOMath, a firm that helps children practice mathematics. In 2018, TAL wholly-owned a critical thinking training startup, Dr. Panda.

Other companies have been active here as well. Just over a year ago, NetEase launched a K12 mathematics brand. Towards the end of 2018, K12 online firm Zhangmen officially announced its focus on quality education by releasing two brands, Zhangmenjiaoyu (掌门少儿) and Zhangmenpeilian (掌门陪练). Two months later, children’s English teaching unicorn VIPKid entered the track with the 1-on-4 mathematical thinking course, Luna education (噜啦数学).

For the leading online education firms, it seems reasonable to take advantage of their brand names and the established technical barriers to realize the expansion of critical thinking training.

When talking about the critical thinking training track producing a unicorn, there are only two candidates at the moment: HuohuaSiwei and VIPThink. Both startups have raised millions of dollars twice this year and are backed by some very well-known investors. It’s worth mentioning that HuohuaSiwei’s last round was worth USD 85 million and was led by GGV Capital, Kohlberg Kravis Roberts. 

Children's thinking training courses suddenly became popular this year but the concept was proposed only two years ago. 

However, the track is still in its infant stage, with a penetration rate of only 1%. It seems that it is a bit too early to predict the birth of a unicorn. 

As we can see from the above graph, the Angel to B round counted for almost 80% of the investment in the children’s critical thinking track with HuohuaSiwei being the only firm raising  D and C rounds.

As far as children’s coding education is concerned, this has been cold for quite some time now. Although Hetao, one of China's leading firms in the track, raised a Series B round of financing worth USD 50 million. This round of financing was jointly led by Hillhouse Capital (高瓴资本) and China Renaissance with UMF (众源资本), WE Capital (微影资本), Source Code Capital (源码资本) and XVC. The added funds will raise the resource levels and expectations for the startup considerably.

It is worth mentioning that this round of financing is currently the highest amount in China’s children's programming education sector.